Magazine

Your Next Great Money Habit

By Sallie Krawcheck

May 15, 2017

Think about a great skill you have. Doesn’t have to be something for the
record books, just a skill that you know helps you stand out.
One that you’re proud of and ready to #humblebrag about. Cooking is
what’s coming to mind for me right now (ask anyone, I make a mean peach
pie).

But cooking also really works well with the point I’m about to make,
which is that one of the consistently best ways to see your efforts pay
off is by making the behavior a habit. A few summers ago, I declared that
it was going to be the “summer of the pie,” (because why not?) so I made
pie after pie after pie until I got it exactly right. Turns out legendary
French chef Jacques Pepin takes a similar approach: Cooking often is his
number one habit for better cooking (having a glass of wine before and
after cooking come in at four and five…like I said, similar approach).

The truth is there are no shortcuts in investing.

The same goes for investing. Investing regularly is how you can become an
experienced investor (and improve your chances of reaching your goals).
So much so that making investing a habit is the first rule in Ellevest’s
newest publication “The
Go-Getter’s Guide to Investing.” In this guide, we’re breaking down
the five essential rules of investing and doing away with the bull to
help you invest in your goals like — *snaps fingers* — that.

But before we talk about how you can make investing a habit, we have to
talk about an overrated investing strategy first.

Calling the Market Right…Ugh

Contrary to what Hollywood, Wall Street, and that MBA-wielding
know-it-all (you know the one) would like you to believe, getting your
timing right for investing (“buy low and sell high!”) isn’t an effective
investing strategy. They make it seem like investing is all about being
in the right place at the right time. According to them, it’s the only
way to make a good amount of money, and the Real Investors are the ones
who do it time and time again.

Yeah…no. I spent three decades on Wall Street, wrote reams of
research, and to this day, still read tons of research on what’s
happening in the industry. The unsexy, Behind-the-Music truth is that
it’s incredibly hard to beat the market when your investing strategy is
all about timing the market.

Don’t believe me? Then let’s quantify “incredibly hard” here. According
to the data, less
than 0.1% of money managers beat the market over a five-year
period.

But what if I told you that by making investing a habit, you could
potentially see market-like returns over time? No one can predict what
market returns will be in the future, but historically they’ve averaged 9%-11%.

Steady, Steady, Steady

The truth is there are no shortcuts in investing. It’s a long game
(that’s why I wrote “over time” above), and any strategy that focuses on
timing the market is short-sighted because you can’t always know when to
“buy low and sell high.”

However, when you’re investing steadily, you’ll have “buy low” moments
alongside any “buy high” ones because you’ll be putting your money to
work in different market conditions. And that may pay off.

Take the financial crisis of 2008. It took the Dow five years to
recover from its declines; but if you had invested regularly — which is
what we recommend at Ellevest — investing $1,000 in early 2008 and $1,000
in early 2009, your investment account would have more
than recovered by the end 2009, with more than the original $2,000 in
it. Not bad.

So what does it take to invest steadily? Less than you think, probably.
It’s less about dollar amounts — no, you do not need to be a millionaire
to invest, at least not with Ellevest — and more about percentages, as in
putting aside X% of your paycheck. The goal is 20% of your monthly
take-home pay, but if you have to start lower, say…10%, 5%, or
even 1%, go ahead. Remember: This is about building a habit, so the
behavior is what’s really important here.

After you figure out an amount that works for you — FYI: Ellevest
actually includes deposit recommendations for you in your free
personalized investment plan — all you have to do is set up the frequency
of your deposits. Automated deposits are your friend here, believe me.
It’s the easiest way to make sure you stick to regular deposits and that
way, you don’t have to deal with the
“should-I-shop-that-sale-or-should-I-deposit-this-money” dilemma every
15th and 30th of the month.

I’m happy to say that almost three-quarters of Ellevest clients invest
with recurring deposits, so you’ll be in great company once you start.

The information provided should not be relied upon as investment advice or
recommendations, does not constitute a solicitation to buy or sell
securities and should not be considered specific legal, investment or tax
advice.

The information provided does not take into account the specific
objectives, financial situation or particular needs of any specific person.

Diversification does not ensure a profit or protect against a loss in a
declining market. There is no guarantee that any particular asset
allocation or mix of funds will meet your investment objectives or provide
you with a given level of income.

Investing entails risk including the possible loss of principal and there
is no assurance that the investment will provide positive performance over
any period of time.

Money is power.Invest like a woman.

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